Consulting support to CFOs, helping them to enhance the efficiency and effectiveness of their Finance function, is proving to be a hardy perennial in the market. Surely all the consultancy that was purchased going all the way back since the 1980s should mean that the problems have now been well and truly fixed? The number of Finance Transformation engagements in the market today show that this is clearly not the case. Why is that so?

During my career I have engaged with Finance functions in many roles. Beginning as an audit student, I learnt the skills of understanding what the audit tests were telling me – when I could draw robust conclusions and when I had to recognise that the results looked odd and I needed to investigate further. Then as a junior manager in the Finance function of a fast-growing international bank, I performed the monthly cycle of Finance operations, budgeting and reporting, and learned how to strike the right balance between supporting and challenging business executives.

Ten years followed in Big 4 Finance Transformation consulting, at a time when ERP implementations were in full flow, and I worked with large complex clients to design and implement new processes and reporting suites, global shared service centres and business partner roles. I then moved joined a technology company in a general management role, where I designed and delivered outsourced Finance services to external clients. As a global managing director with activities in multiple geographies, I had my own Finance business partner who helped me to understand our financial performance and survive in a world of tough growth targets.

Nowadays back in management consulting, I interact frequently with Finance functions when working on business process transformation assignments in complex organisations. Periodically I take myself right back to the basics of debits and credits, volunteering with small charities / NGOs in developing countries, working jointly with the local team to design and implement new processes and systems such as Quickbooks. Finally, I am CFO of two not-for-profit organisations in the UK.

Back then to the fact that Finance Transformation assignments seem to be a hardy perennial. Why has the transformation challenge not yet been put to bed? What insights can I bring from the multiple different capacities in which I have worked with Finance teams for more than thirty years?   

Accounting fundamentals

The core building blocks of debits and credits are still there and show no sign of disappearing. You cannot argue that Finance has had to respond to a fundamental shift in its foundations, in the same way that a move to service-oriented architecture has transformed IT design and development.

Accounting policies and the rules for presenting items in financial reports have continued to evolve, giving rise to short term assignments to help meet the new requirements – the current “all hands on deck” requirement in the UK is in the insurance sector, where IFRS17 is significantly changing the way in which future insurance liabilities must be shown in an insurance company’s accounts.

Such projects cut across the multiple dimensions of people, processes, data flows and systems, but are more technical than they are transformational. The short term pain in responding to such new policies and regulations is in the need to reconfigure data flows, and potentially also in the need to build new sub-ledgers to hold increasingly detailed levels of data.

Tools of the trade

While the building blocks have remained the same, there has been a continued evolution in the tools used by Finance functions to access data rapidly and to reduce paper and re-keying. Good examples are the real time interface of bank transactions from a bank’s systems into accounting ledgers, and the ever-increasing availability of self-service tools for running reports and creating transactions such as expense claims.

Robotic Process Automation is being adopted, particularly by outsourced Finance functions which are under significant cost pressure, to automate rules-driven processing tasks and to eliminate data re-keying across key interfaces.

Many organisations will have moved to new accounting systems, and will have addressed the question of whether or not to use cloud services for some or all of these systems, weighing up issues of cost and convenience, data security and inflexibility. For large complex organisations, the biggest factor in the move to new accounting systems will be all the work that has to take place on the interfaces from feeder systems. 

Perhaps one of the biggest recent changes has been in the use of data visualisation tools, which aim to make reports capture the attention of readers against a background of data overload and boredom with the more prosaic reports that are provided by ledgers and spreadsheets.

These data visualisation tools have a lot of powerful functionality, but of course are only as good as the availability and quality of the underlying data. These tools are often purchased direct by the business (for example, by the Sales function to report on forecasts). While these tools have their advantages, a challenge for the Finance function is to ensure a single version of the truth is accepted across the organisation.

The growing acceptance in the wider world of alternative versions of the truth, with the selective readiness to label truth as fake news, means that the Finance function needs to stay alert and retain control of what is and is not acceptable data for performance management across the organisation. While this does not merit the label of “transformation”, it is certainly an area where things have the potential to go badly wrong.  

Evolving to meet the needs of the enterprise

The label “Finance Transformation” has typically related to the vision, organisation and skills of Finance, and has then extended to processes, controls, data flows and systems. Today many organisations have implemented concepts such as shared service centres and remote business partners, along the lines of the Ulrich model which was devised back in 1995 for HR functions.

But a transformational new Finance structure will be never last for ever. Enterprises evolve both organically and through acquisitions and divestments. Where this evolution happens across multiple geographies and lines of business, the challenge for Finance can be transformational.

The evolution of the enterprise requires a constant re-tuning of the Finance model, for example in the coverage of the shared service centre, the alignment of business partners and the maintenance of specific technical expertise. It requires the roll-out of processes and systems into new parts of the enterprise, with all of the training and change management which comes with it.

A more unpredictable world

While the themes described above are all important, perhaps the biggest challenge for the CFO is how to steer the enterprise through a world that is far less predictable than it was considered to be twenty years ago. This unpredictability extends across politics, climate, consumer trends, the ability to protect data and intellectual capital, and many other key areas.

For a Finance function, accustomed to make predictions which will influence business decision making, the inherent unpredictability of the external world is naturally unsettling. Yet it would be unfortunate if the Finance function were to step back to being simply the bean counters of what has already taken place. The bean counting is necessary, but it is surely not sufficient.

How should Finance help the enterprise to respond to an unpredictable world? Scenario modelling and the clear articulation of assumptions are important, as are the ability to provide the earliest possible warning signals when assumptions and reality are diverging. There is no overall magic answer, but the worst thing is to pretend the problems caused by unpredictability are not there or will go away of their own accord.

Maintaining respect for proper financial judgement and control is critical too. In recent years we have witnessed the huge problems caused by overly aggressive profit taking and financial engineering. The outsourcing industry, in the UK and elsewhere, has been almost brought to its knees by a vicious spiral of high growth targets that led to decisions to contract for work at ultra-low margins, leading on to the fastest possible recognition of profits to meet the shareholder expectations that have been created, leading to zero room for movement when the contract faces delivery challenges, leading to write-offs and massive reductions in shareholder value.

Where the contract is in a critical area such as the provision of public services, the damage can extend way beyond the pain caused to shareholders.

This problem does not sit in the world of debits and credits. Nor is it really attributable to weaknesses in core Finance processes and data flows. Rather it is about Finance in its leadership and business partnering role, building trust and respect and a deep understanding of the business, and being robustly involved in decision making. In the context of the example above, “robust” should not mean agreeing that the delivery team can be given highly unrealistic future cost reduction targets which somehow make an early profit take acceptable. “Robust” rather means prudent financial analysis, control and the effective use of escalation paths where necessary.

But for many organisations this requires an ongoing investment in the skills and positioning of business partners and senior financial controllers, all of which costs money when resources are scarce. So the CFO will look at the ongoing optimisation of the end-to-end Finance function, taking advantage of the automation tools that are available, creating lean processes and eliminating waste.

This is driven not only for reasons of affordability, but also because Finance needs to be confident that it is doing the simple things right, in order to have both the bandwidth and the credibility to address the bigger challenges on its plate, rather than arguing on the back foot over whether a figure in a spreadsheet is correct.

In summary, Finance Transformation might well have been put to bed as a consulting service if business and the wider world had stood still. But the pace of change, the increasing level of unpredictability and the heightened pressures on business management all mean that Finance must keep on transforming itself to maintain relevance and to grasp the very significant challenges which both the enterprise and our wider society are so reliant on Finance to address.